Does the Constitution prevent Nashville from enacting a local hire law? Yes, it probably does.

By Daniel A. Horwitz

On August 6, 2015, Davidson County voters will head to the polls to vote on Metro Charter Amendment 3, which has been dubbed the “local hire” amendment.  If enacted, the crux of Amendment 3 is that 40% of the work performed on taxpayer-funded construction projects within Davidson County would legally have to be set aside for Davidson County residents.

In recent weeks, opposing advocates have expressed their views on Charter Amendment 3 in editorials published in The Tennessean.  First, on June 22, 2015, union organizer and community activist Ashford Hughes penned the op ed: “[A] Vote for Charter Amendment 3 is [a] vote for local jobs,” in which he argued – among other things – that “[i]t makes no sense to bring in out-of-county and out-of-state hires when so many Nashville construction workers, engineers and skilled tradesmen and women are out of work.”  Making the contrary case, on June 30, 2015, Nashville Area Chamber of Commerce President Ralph Schulz penned the op ed: “Vote no on Amendment 3: It sounds good, but won’t work,” contending that the measure “would translate to longer delays on Metro construction projects and more money coming out of taxpayers’ pockets.”  Various other interested parties have also weighed in on the matter in recent days, disputing the referendum’s likely policy ramifications.

What has largely flown under the radar to this point, however, are the constitutional implications of the proposed local hire amendment, which are substantial.[1]  The text of the proposed amendment is a doozie, but in full, it reads as follows:

“In order that local taxpayers are protected and local Davidson County residents have opportunity [sic] to work on taxpayer-funded projects, the division of purchases, when expending funds or other resources of the metropolitan government in the amount of One Hundred Thousand Dollars ($100,000.00) or more on a project for the building, altering, repairing improving or demolishing any [sic] public structure or building or other public improvements of any kind to any public real property, but excluding professional services, shall require that one (1) or more residents of Davidson county perform Forty Percent (40%) of the Total Construction Work Hours worked by construction craft workers on each project whether workers are employed by a contractor or any subcontractor, and shall require that a significant effort be made to ensure that no less than Ten Percent (10%) of the Total Construction Worker Hours are performed by low income residents of Davidson County.  In determining the Total Construction Worker Hours for each project, there shall be included the number of hours worked on all customary construction activities, but shall exclude [sic] the number of hours of work on the project performed by workers who are not residents of Tennessee.  A procedure for reporting Total Construction Worker Hours and a penalty for failure to comply with this requirement may be provided by ordinance or by the division of purchases consistent with ordinances, and all reports will be made available to the public.”

Considered in full, the purpose of Amendment 3 is unabashedly protectionist, and its effect would be to protect Davidson County workers from competition with outsiders.  The organizers behind the measure have never been shy about this goal, noting, for example, that:  “If people feel that it’s OK to use Nashville tax dollars to bus in people from Birmingham, Kentucky and Florida, then this amendment is not for you.”  (More on this below—the ordinance actually exempts all out-of-state workers from its requirements, and for good reason.)  Of note, the amendment’s threshold premise that Davidson County tax dollars should be spent hiring Davidson County workers also appears to be incredibly popular among Davidson County voters—a fact that does not seem particularly surprising.

The potential constitutional ramifications of Amendment 3, however, are somewhat less clear.  Generally, protectionist laws risk constitutional challenge on one of two grounds:  (1) assertions that they violate the “Dormant” Commerce Clause of the United States Constitution; and (2) assertions that they violate the Privileges and Immunities Clause of the United States Constitution.  Within the Sixth Circuit Court of Appeals, however (which encompasses Tennessee), a third challenge was made possible by the Sixth Circuit’s decision in Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002), which held that: (3) “protecting a discrete interest group from economic competition is not a legitimate governmental purpose.”  Finally, a fourth potential challenge could arise under Article I, Section 8 of the Tennessee Constitution due to the Tennessee Supreme Court’s longstanding decision in Consumers Gasoline Stations v. City of Pulaski, 292 S.W.2d 735, 737 (Tenn. 1956), which held that: (4) “Although [a] city may have the right to regulate [a] business, it does not have the right to exclude certain persons from engaging in the business while allowing others to do so.”  Each of these four potential constitutional challenges will be examined in turn.

1.  The “Dormant” or “Negative” Commerce Clause of the United States Constitution

Article 1, Section 8, Clause 3 of the United States Constitution expressly grants Congress the power “to regulate commerce . . . . among the several states[.]”  The Commerce Clause has long been a favored source of congressional authority to enact federal laws, and as a result, it provides the underlying source of authority for the overwhelming majority of federal laws today from abortion regulations to marijuana prohibition to most areas in between.  Toward that end, in an effort to protect Congress’s authority “to regulate commerce . . . among the several states,” the United States Supreme Court has held repeatedly that the power to regulate interstate commerce is exclusive to Congress.  Thus, the Supreme Court has held in several instances that states (and local governments) may not enact laws that unduly burden interstate commerce—an implication that has been dubbed the “dormant” or “negative” Commerce Clause.  Subjects of purely local concern, however, have long been subject to regulation by the states, and Congress may also confer its authority to regulate interstate commerce upon state and local governments as well.

Under modern constitutional standards, if a state or local law implicates interstate commerce, then courts will apply one of three tests that depends on whether the law in question: (1) facially discriminates against out of state commerce; (2) has an impermissibly protectionist purpose or effect on interstate commerce; or (3) has a disproportionate adverse effect on interstate commerce.  In this particular instance, however, going through each of these tests is unnecessary, because the U.S. Supreme Court has also adopted a “market participant” exception to the Dormant Commerce Clause that permits governments to favor local residents when they are acting as a “market participant.”  Most helpfully, in the similar local hire case White v. Massachusetts Council of Const. Employers, Inc., 460 U.S. 204, 208 (1983), the U.S. Supreme Court held unequivocally that “when a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause.”  See also United Bldg. & Const. Trades Council of Camden Cnty. & Vicinity v. Mayor & Council of City of Camden, 465 U.S. 208, 213 (1984) (noting that in White, the U.S. Supreme Court “held that an executive order of the Mayor of Boston, requiring that at least 50% of all jobs on construction projects funded in whole or part by city funds be filled by bona fide city residents, was immune from scrutiny under the Commerce Clause because Boston was acting as a market participant rather than as a market regulator.”).

Consequently, because Amendment 3 applies exclusively to “taxpayer-funded projects,” the market participant exception permits Davidson County to spend its money in a way that favors local residents whenever it participates in the construction market.  As a result, a Dormant Commerce Clause challenge to Amendment 3 would fail.

2.  The Privileges and Immunities Clause of the United States Constitution

In a similar vein to the Dormant Commerce Clause, the Privileges and Immunities Clause found in Article IV, § 2 of the federal Constitution protects citizens from discrimination on the basis of state residency.  As the Supreme Court has explained, “The Privileges and Immunities Clause . . . imposes a direct restraint on state action in the interests of interstate harmony.”  Camden, 465 U.S. at 220.  Thus, generally speaking, if a state provides certain important benefits to its own citizens, then it is obligated to provide the same benefits to citizens of other states as well.  Additionally, the U.S. Supreme Court has also held in no uncertain terms that “[t]he fact that [a law] is a municipal, rather than a state, law does not somehow place it outside the scope of the Privileges and Immunities Clause.”  Id. at 214.

“Application of the Privileges and Immunities Clause to a particular instance of discrimination against out-of-state residents entails a two-step inquiry.”  Id. at 218.  First, as a threshold matter, a court must decide whether the law in question burdens a privilege or immunity that is protected by the Privileges and Immunities Clause, since “[n]ot all forms of discrimination against citizens of other States are constitutionally suspect.”  Id.  Second, if the law in question does burden a protected privilege or immunity, then a court must determine whether or not there is “a ‘substantial reason’ for the difference in treatment.”  Id. at 222.

i.  Employment is a protected privilege.

As noted above, the U.S. Supreme Court has held that the Privileges and Immunities Clause does not preclude all forms of discrimination against citizens of other states.  Instead, it is “[o]nly with respect to those ‘privileges’ and ‘immunities’ bearing upon the vitality of the Nation as a single entity [that a State must] treat all citizens, resident and nonresident, equally.”  Baldwin v. Fish & Game Comm’n of Montana, 436 U.S. 371, 383 (1978).  Of note, however, the opportunity to obtain employment on publicly-funded construction projects plainly falls within the ambit of Privileges and Immunities Clause.  As the United States Supreme Court has explained:  “The opportunity to seek employment . . .  is sufficiently basic to the livelihood of the Nation as to fall within the purview of the Privileges and Immunities Clause even though the contractors and subcontractors are themselves engaged in projects funded in whole or part by the city.”  Camden, 465 U.S. at 221-22 (internal quotations omitted).

 ii.  Substantial reason for the difference in treatment?

Even if a law does discriminate against out-of-state citizens by denying them a protected privilege or immunity of state citizenship, however, this does not end the inquiry.  As the Supreme Court has explained, “the privileges and immunities clause is not an absolute.”  Toomer v. Witsell, 334 U.S. 385, 396 (1948).  More specifically: “It does not preclude discrimination against citizens of other States where there is a ‘substantial reason’ for the difference in treatment.” Camden, 465 U.S. at 222.  Thus, “[t]he inquiry in each case must be concerned with whether such reasons do exist and whether the degree of discrimination bears a close relation to them.”  Toomer, 334 U.S. at 396.  Of note, “The inquiry must also . . . be conducted with due regard for the principal that the States should have considerable leeway in analyzing local evils and in prescribing appropriate cures.”  Id. 

In this case, it seems unlikely that proponents of the ordinance would be able to prove that there is a “substantial reason” for the difference in treatment between local and out-of-state residents.  See Hicklin v. Orbeck, 437 U.S. 518, 526 (1978) (describing as “at least dubious” the notion that “a State may validly attempt to alleviate its unemployment problem by requiring private employers within the State to discriminate against nonresidents,” and invalidating Alaska’s local hire ordinance under the Privileges and Immunities Clause).  See also Camden, 465 U.S. at 222 (declining to answer the question where municipality contended that “[s]piralling unemployment, a sharp decline in population, and a dramatic reduction in the number of businesses located in the city ha[d] eroded property values and depleted the city’s tax base.”).

Crucially, however – and in likely anticipation of this constitutional problem – the drafters of the referendum explicitly exempted out-of-state residents from the requirements of the measure.  Specifically, the ordinance provides that the definition of Total Construction Worker Hours:  “shall exclude the number of hours of work on the project performed by workers who are not residents of Tennessee.”  Thus, it is conceivable that 100% of city-funded construction jobs could be given to out-of-state residents without violating the terms of the amendment, which plainly neutralizes any serious claim of out-of-state discrimination.  Interestingly, it is actually opponents of Amendment 3 who have made this point in arguing against its enactment, contending that: “Amendment 3 would automatically give out-of-state contractors a cost advantage over Tennessee companies in bidding on Metro projects. That would translate to more bidders from outside Tennessee hiring more workers from outside Tennessee.”

Accordingly, having expressly carved out an exception to avoid discrimination against out-of-state workers, Amendment 3 would survive a challenge based on the Privileges and Immunities Clause as well.

3.  The 14th Amendment’s Rational Basis Test, and the Sixth Circuit’s Holding in Craigmiles v. Giles

Charter Amendment 3 is an economic regulation.  Consequently, it is worth remembering that: “The government typically enjoys broad authority to enact economic regulations . . . even when they constitute poor public policy and don’t make a great deal of sense.”  In legal parlance, when an economic regulation is challenged under the 14th Amendment’s Due Process Clause or Equal Protection Clause, the regulation is subjected to what is known as “rational basis review.”  Under rational basis review, opponents of Amendment 3 would bear the burden of proving that it does not bear a rational relation to any conceivably legitimate governmental purpose—even a hypothetical one.  Of note, with vanishingly few exceptions – most of them involving cases litigated by the libertarian public interest firm the Institute for Justice – rational basis review has proven to be an insurmountable hurdle for constitutional litigators, meaning that virtually all economic regulations survive it.

In the Sixth Circuit Court of Appeals, however – which has jurisdiction over Tennessee – protectionist laws face a slightly more difficult standard as a result of controlling (and, candidly, questionable) precedent.  Specifically, in the 2002 case Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002), the Sixth Circuit Court of Appeals held that “protecting a discrete interest group from economic competition is not a legitimate governmental purpose.”  It should be noted that despite its laudable public policy benefits, Craigmiles is highly questionable as a matter of constitutional jurisprudence.  See, e.g., Powers v. Harris, 379 F.3d 1208, 1218-19 (10th Cir. 2004) (“Because the four Supreme Court cases collectively cited by Craigmiles . . .  do not stand for the proposition that intrastate economic protectionism, absent a violation of a specific constitutional provision or federal statute, is an illegitimate state interest, we cannot agree.”); Meadows v. Odom, 360 F. Supp. 2d 811, 822 (M.D. La. 2005) (discussing the disagreement over Craigmiles, and ultimately concluding that “[a]fter carefully reviewing the jurisprudence on this issue, this Court agrees with the decision rendered in Powers v. Harris” instead), vacated as moot, 198 F. App’x 348 (5th Cir. 2006).  Even so, Craigmiles remains good law within the Sixth Circuit, and Amendment 3 would have to survive its rationale unless and until Craigmiles is overturned.

Consequently, the question that a court would ask in determining whether Amendment 3 satisfies constitutional scrutiny under the 14th Amendment is as follows:   Is the sole purpose of Amendment 3 to “protect[] a discrete interest group from economic competition”?  Plainly, the answer to this question is yes.  As the proponents of Amendment 3 have stated repeatedly, the whole point of the measure is to protect Davidson County construction workers from economic competition from outsiders, and the effect of Amendment 3 would be to do just that.  Thus, in the author’s view, Amendment 3 cannot satisfy constitutional scrutiny under the standard established by the Sixth Circuit in Craigmiles v. Giles, and if enacted, it would ultimately be struck down as a violation of the 14th Amendment as a result.

4.  Article I, Section 8 of the Tennessee Constitution

Like the Sixth Circuit’s interpretation of the 14th Amendment to the United States Constitution in Craigmiles v. Giles, the Tennessee Supreme Court has held that Tennessee’s Constitution similarly forbids certain forms of economic protectionism.  As the author has previously explained, for example, in a case involving the right to participate in the filling station business, the Tennessee Supreme Court has held that:

“Although [a] city may have the right to regulate [a] business, it does not have the right to exclude certain persons from engaging in the business while allowing others to do so.”  See Consumers Gasoline Stations v. City of Pulaski, 292 S.W.2d 735, 737 (Tenn. 1956).  According to the Consumers Gasoline Stations Court, such a law is “unconstitutional in that it unquestionably denies the equal protection of the laws to the person forbidden to use his property,” and “being discriminatory in nature[,] clearly violates Article I, Section 8 of the Constitution of Tennessee.”

Thus, under this standard, the question becomes:  Does Amendment 3 “exclude certain persons from engaging in [a] business while allowing others to do so”?  Id. 

Admittedly, the answer to that question is not entirely clear.  Amendment 3 only requires a 40% set-aside for local residents—meaning that non-locals are not categorically excluded from locally-funded construction work.  Similarly, the fact that Amendment 3 deals only with projects involving the expenditure of local tax dollars – rather than affecting the entire construction industry – provides a second compelling basis for distinguishing the two situations.  On balance, however, the clear import of the Tennessee Supreme Court’s holding in Consumers Gasoline Stations is that it is unconstitutional to give certain people the opportunity to participate in a business while denying others that same opportunity.  Because both the purpose and the effect of Amendment 3 is to ensure that local residents receive certain construction jobs and to deny non-locals those same opportunities, in the author’s view, Amendment 3 – if enacted – would violate Article I, Section 8 of the Tennessee Constitution as well.

Conclusion

For the reasons expressed above, Amendment 3 will survive any constitutional challenge brought under either the Dormant Commerce Clause or the Privileges and Immunities Clause of the United States Constitution.  However, as a result of the Sixth Circuit’s decision in Craigmiles v. Giles, and as a result of the Tennessee Supreme Court’s decision in Consumers Gasoline Stations v. City of Pulaski, Amendment 3 will probably not survive a constitutional challenge brought under the 14th Amendment to the United States Constitution or Article I, Section 8 of the Constitution of Tennessee.

Questions about this article?  Email Daniel Horwitz at daniel.a.horwitz@gmail.com.

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[1] Whether the proposed amendment is (also) foreclosed by Tennessee statutory law is beyond the scope of this article, although there is strong reason to believe that it is.  See Tenn. Code Ann. § 62-6-111(i)(2)(C) (“No county or municipality shall require [a] state licensee or its employees to pass any county or municipal test or examination; nor shall a county or municipality impose any additional requirements upon the state licensee or its employees . . . .”) (emphasis added).  This article also does not address the potential impact of some apparent drafting errors in the proposed amendment, such as its categorical requirement that local workers “perform Forty Percent (40%) of the Total Construction Work Hours worked by construction craft workers on each project,” rather than mandating that local workers perform at least forty percent of construction work hours.